Fixing Hidden Wealth Eroders’ So You Don’t Have to Chase Returns – part 1

There is so much uncertainty in our world today.  Whether it’s when a vaccine will be available for the virus, to how the economy will look a year from now, to how businesses and education will evolve to a virtual world, it may seem the world is spinning out of control.  However, in times like these, the key is to focus on the reality of the situation so we can pave a path toward progress and prosperity.

It’s really about control, and no philosophy addresses this better than Stoicism.  The Stoics believe a variety of things, but most of them center around creating a strong internal locus of control.

An internal locus of control is when you have the belief that you are responsible for your success or failure in this world.

Life is putting forth a challenge summed up in one sentence:  “Such and such happened. So what are you gonna do about it?”

For those concerned about your personal finances and what the future may hold, I would highly encourage you attend a webinar we’re holding in the coming weeks. We’ll be sharing some vital information that will give you strategies to gain more control over your wealth so you can enjoy more of it over your lifetime.

Key Takeaways

Portfolios are more likely to earn single-digits than double-digits this decade. Maybe it’s time to start going on a “fee diet.”

Instead of trying to squeeze out a few extra basis points of alpha on your investments, why not take a closer look at all your policies, statements and fees?

While it’s tempting to refinance at today’s rock-bottom rates, you have to take a look at the big picture impact on your wealth.

Even before the pandemic surfaced, many experts were warning investors to temper their expected returns for the decade ahead. Vanguard’s May 2020 Market Perspectives advised clients to reset their 10-year annualized returns on stocks to a range of 4.8% to 7.8% per year–and no more than 1.0% to 2.0% annually on U.S. bonds.

Many of you have been saving a decent amount of income for retirement—10% is not unusual. Congrats. But chances are you’re spending sizeable amounts of money on taxes and interest payments on your mortgages, home equity lines, college loans, car loans, credit cards and more. And that’s on top of your normal monthly living expenses.

While you want that 10% to grow, have you ever thought about all the little fees and expenses you pay that quietly eat away at your wealth? If you could efficiently chip away at all the hidden wealth eroders then you wouldn’t have to take on as much risk with your investments and constantly “chase returns” to make your nest egg grow.

Let’s take a closer look at those hidden wealth eroders and see how you can attack them:


  1. Mortgage refinancing. Everyone, including your mortgage company, is encouraging you to refinance at today’s record low interest rates. It’s hard to resist the lure of locking in a rock-bottom interest rates and lowering your monthly payments by hundreds if not thousands of dollars on your largest loan. Just remember you will likely be paying points and other fees amounting to at least 1% of the total loan for the privilege of refinancing. Also, if you look at a standard amortization table, you’ll see that when you refinance, you go back to the earliest years of the loan. That means you’re paying mostly interest, not chipping away at principal, for the next half dozen years or so.


Refinancing every five years or so is okay if we’re talking about an income-producing rental property—or if you need more interest tax deductions. But, if it’s your primary mortgage, you’re just making money for the banks and mortgage brokers and not really helping yourself.


  1. Fees on your investments. Even if you own “no load” mutual funds, it’s common to see “management fees” amounting to 1%-2% of your assets taken out of your account every year. Even a 1% management fee every year could be eroding over 20% of the value of your account over a 20- to 30-year period. Imagine the impact of a 2% or higher annual management fee?


This is a good time to take a hard look at the fees you’re paying on your various accounts. I know most investors don’t even know which fees they’re paying or how much their losing every year to the compound effect of those fees. But, even an extra 1% in fees every year can have a devasting effect on your wealth and retirement. Fees are a real opportunity cost. Ask yourself if you’re really getting added value for all those “management fees” and “transaction fees.” If not, there are plenty of other options that have extremely low fees or moderate fees that you really should explore with your advisor.


  1. Interest on auto loans, credit cards, student loans, HELOCs. I’ve come to understand that the way you use your money is more important than where you put it. Nothing demonstrates this more than financing all the things in your life. There are two primary ways we finance things:


1) We take on debt and pay back principal (with interest) or

2) We pay cash and avoid the interest payments.


As Nelson Nash, author of Becoming Your Own Banker writes, “you finance everything you buy…you either pay interest or pass it up.”

However, there’s a third way to finance things that can help you recapture significant interest cost. It allows your money to grow and compound continuously in a safe vehicle for long periods of time and use it as collateral to borrow from a financial institution. Having your money continuously earning will allow you to grab the magic of compound interest.

I’ll talk more about this strategy in my next post.


Opportunity cost

The reason I’m so adamant about focusing on all the hidden wealth eroders in our lives is that there’s a significant opportunity cost to ignoring those fees. Every dollar you pay out in unnecessary fees is a dollar you cannot use to make your money grow. Think about it like a $5 cup of coffee at Starbucks? Sure, it smells and tastes good when you first receive it from your friendly server in the morning. But what if you took that $5 and invested it instead in a simple index fund earning 5% a year? That $5 would be worth $21.61 in 30 years without lifting a finger. That’s an expensive cup of coffee at the Opportunity Cost Café.



When it comes to building wealth and achieving peace of mind, its’ not about how much money you make; it’s how do you make the most of your money. My video (Maximize Potential) has more. If you or someone close to suspects your money is not working as hard as it could be working for you, please don’t hesitate to call.